Colgate-Palmolive (NYSE:CL), the oral care giant with over 45% share of the global toothpaste market, continued to build on the broad momentum gained in the first quarter. Organic sales (net sales growth excluding the impact of foreign exchange, acquisitions and divestments) grew 5.5% y-o-y on the back of 4% and 1% increases in volumes and prices, respectively. Despite such a remarkable performance, net sales increased by only 2% to $4.34 billion due to the strengthening dollar that led to foreign exchange losses. However, the management highlighted that the company has and will continue to alter prices in the markets to the extent required to offset the transaction impact. 
Net income declined by 10% to $560 million as Colgate-Palmolive incurred higher advertising expenditure on brand building and supporting product launches. The company plans to increase advertising spend in the future to support its long pipeline of product launches across the globe. Although this will impact its bottom-line, it is necessary to drive top-line growth in a competitive environment.
Hill’s Pet Nutrition Steals Spotlight With Faster Turnaround Than Expected
The turnaround of the Hill’s pet nutrition business marked a key success for Colgate-Palmolive as it had been performing relatively poorly compared to the company’s other divisions. Net sales from the pet nutrition business, which contributes about 13% to total company sales, increased 3.5% y-o-y compared to a decline of 1.5% y-o-y in Q1 2013.
The turnaround occurred one quarter ahead of schedule due to new product activity that was well received by consumers and faster execution from the company’s retail partners, PETCO and PetSmart. The success is also attributable to the launch of the marketing campaign across television and digital media for pet care products. Colgate-Palmolive expects its plans for the division to achieve complete fruition only after the third quarter as it continues to invest in further innovations and advertising till then.
Emerging Markets Will Continue To Lead Growth
Colgate-Palmolive’s overall growth in Q2 2013 was largely backed by a 8.5% y-o-y organic sales increase in emerging markets, with Brazil, India, Russia, China and Turkey being the major contributors. The company is the market leader and well ahead of its competitors in many of these markets. In line with our expectations, its share continued to increase in several categories in these countries with consumers buying at all price points, including value and premium segments. (Read: Colgate-Palmolive Earnings: New Products, EM Penetration Will Support Growth)
Organic sales in Greater Asia/Africa were higher by about 10% y-o-y as volumes and prices contributed equally to the growth. Colgate-Palmolive’s market share in India rose by 1% year-to-date to a record 54% as buying activity remained robust; it also experienced market share gains in China and Russia. Latin America organic sales rose 7% compared to Q2 2012 on new product activity. The company achieved a market share of about 72% in toothpastes in Brazil, the highest level in 15 years, while in Mexico its share stood at over 80%. It is now the market leader in manual toothbrushes in every country across the Latin American region.
Although Colgate-Palmolive has grown significantly in emerging markets, we believe that with a strong pipeline of innovative products, backed by increased advertising, its market share will continue the upward trajectory in these markets.
We are in the process of updating our $56 price estimate for Colgate-Palmolive.Notes: